This article is part of a Face Off series. Its opposing article, “To Raise Or Not To Raise…It’s Not Even a Question,” can be found here.
Economists are like politicians: they never agree and constantly seek to portray each other in bad light. One of the eternal debates in the economic world remains the minimum wage. Economists debate the implications of its raising and lowering on job growth, unemployment, poverty rates, and myriad other issues. As there currently exists no viable alternative to minimum wage, we should restructure the minimum wage system rather than abolish the measure. While some economists suggest that higher minimum wage leads to less job growth as employers hire fewer workers due to rising costs of employees, countless studies have revealed no causality between increased unemployment rates and increased minimum wage. Nobel Prize of Economics winner Paul Krugman claimed that “hiking the minimum wage has little or no adverse effect on employment.” His opponents argue that increasing minimum wage leads to cost-push inflation, which occurs when producers raise prices of goods to recoup costs of increasing employees’ pay. Yet countless others counter that the inflation adjusted value of today’s federal minimum wage of $7.25 an hour reveals that wages are lower than in decades past, even dating back to 1973. Many economists have found that small increases in minimum wage hardly impact unemployment rates, and, as such, suggest gradually increasing federal minimum wage. While initial effects of wage increase may heighten unemployment, its long term economic effects, such as increased aggregate household spending and higher GDP, would foster job growth. The Economic Policy Institute claimed that increasing minimum wage to $10.10 would feed $22.1 billion into the economy and create about 85,000 new jobs throughout a three-year phase-in period.
Others cite minimum wage as the culprit for lower class social stagnation. They argue that because minimum wage jobs provide less opportunities for diverse, higher-skilled work experience, they entrap the lower class by rendering them unable to obtain higher-paying jobs. However, a survey investigating whether a $9 federal minimum wage would make it “noticeably harder” for low-skilled workers to obtain jobs found that a third of the economists replied yes, a third replied no, and a quarter were uncertain. Prevalent across the social sciences, such vastly differing conclusions often result from differences in research design and misinterpreted data, as there is no foolproof way to accurately measure causal implications of minimum wage on related social patterns.
For some legal background, the oft-revised 1938 Fair Labor Standards Act (FLSA) remains paramount in wage labor law. Dictating standards of minimum wage and overtime pay, FLSA requires that when state and federal law conjoin, the law decreeing higher standards must be upheld. As the federal minimum wage of $7.25 has not increased since 2009, regardless of inflation, many states have mandated higher pay to provide residents with somewhat-livable wages. Additionally, FLSA does not require employers to give paid vacation, paid sick days, raises, or other benefits. But to remain competitive, most companies offer additional compensation through vacation and health care, which have become common aspects of minimum wage jobs.
These legal standards are important to consider alongside wage trends. According to the United States Department of Labor, 79.9 million workers age 16 and older were paid at hourly rates, representing 58.7 percent of all wage and salary workers. Two-thirds of workers earning minimum wage or less in 2016 were employed in service occupations, and 1.5 million had wages below the federal minimum, which by no means constitutes a livable wage. In fact, even the minimum wage does not constitute livable pay. The goal of the minimum wage is not to lower unemployment — it has been instituted to protect those who do not have the resources to provide for themselves and their dependents. Interestingly, research alludes that many younger, educated workers would rather remain in hourly paying careers than salary-based jobs throughout their lives. Many enjoy the balance and separation between their work and personal lives that hourly, not salaried, jobs ensure. If much of the States’ rising workforce plans to stay in minimum wage jobs, we must ensure their wages adequately cover their families’ daily living expenses.
A well-known case study compares Costco and Sam’s Club employees. In 2004, Costco employees received $15.97 an hour, 40 percent higher than the hourly Sam’s Club wage, and enjoyed more comprehensive options for health insurance coverage, 401(k) accounts, and profit-sharing plans. As more satisfied employees leads to higher levels of productivity, Costco earned 1.24 percent more than Sam’s Club in operating profit for each employee in 2004.
Yet, again, won’t increasing hourly wages decrease the number of employees companies can afford, and lead to individuals attempting to cover the jobs of several people? Perhaps not. As a recent Atlantic article discusses, Kellogg’s introduced a six hour work day in the 1930s. As employees worked less in exchange for a 12.5% pay increase per hour, the new shifts allowed Kellogg’s to extend more jobs, decrease production costs, and optimize production output. What if the United States replicated this model? Employees who work less hours for more pay would achieve a more balanced work-life schedule and work more efficiently; employers would hire more people and experience greater company productivity. This solution could potentially exterminate job dissatisfaction, unemployment, and poverty.